Is Ultimax Digital Inc. IPO Stock a Good Buy?

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Contributor, Benzinga
October 24, 2022
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Key Takeaways:

  • Despite macroeconomic headwinds affecting the broader cryptocurrency sector, video game and NFT specialist Ultimax Digital intends to launch a public market debut.
  • Although many blockchain-related companies have floundered in 2022, Ultimax’s diversified business may enable it to succeed where others failed.
  • Nevertheless, Ultimax carries significant risks because of wider market weakness and questions about the viability of crypto-related ventures.

Though the cryptocurrency industry presently reels from severe macroeconomic headwinds, fundamental enthusiasm for the sector remains surprisingly robust. It’s not just the headline virtual currencies that command attention but rather offshoot innovations such as non-fungible tokens (NFTs). To that end, video game developer and NFT marketplace facilitator Ultimax Digital Inc. intends to roll the dice with a public market debut.

Certainly, even without the weight of the crypto brand and its notorious reputation for extreme volatility, Ultimax faces tremendous pressure. Fundamentally, the framework for the initial public offering (IPO) market — or the first time a private enterprise distributes its equity shares to retail (public) investors — encountered significant strains amid a dramatic risk-off environment. But add the feast-or-famine nature of blockchain-related enterprises to the mix and prospective investors must cope with intense downside risks.

Nevertheless, not all hope is lost. Fundamentally, Ultimax offers a varied business model, with subsegments carrying critical relevancies. For instance, the company’s video game publishing sector enjoys a gargantuan total addressable market. According to the World Economic Forum, the gaming industry might command a market value of $321 billion by 2026.

On the other end of the scale, Ultimax’s NFT specialty also benefits from potential sector expansion. Per data from Grand View Research, the NFT market may expand at a compound annual growth rate (CAGR) of 33.9% from 2022 to 2030, culminating in a valuation of $211.72 billion by the end of the forecasted period.

Nevertheless, crypto-related ventures in the public arena stained Wall Street with a torrent of crimson ink. Adding in the volatile nature of an IPO may compound risk with even greater risk. Therefore, prospective participants of the Ultimax Digital debut must exercise extreme caution.

Below are key pros and cons to consider.

What Does Ultimax Digital Do?

Ultimax Digital specializes in video games and blockchain-related innovations, particularly NFTs. Technically, the company focuses on video game development, operating a gaming studio and providing a marketplace for NFTs.

According to Ultimax’s Form S-1 filed with the U.S. Securities and Exchange Commission (SEC), the company was originally incorporated on April 26, 2018, under the name Ultimas, Inc. At the time, the enterprise sought to “solve some of the most significant problems facing video game developers desiring to implement the capability to offer in-game purchases in their video game.”

In 2020, Ultimax pivoted to publishing gaming titles and one year later, it expanded its footprint to include the development of an NFT marketplace. As well, it promoted a technology infrastructure to “allow other video game developers the ability to add in-game NFT minting by game players.”

To better understand the opportunity under Ultimax, it helps to have a basic understanding of NFTs. Unlike virtual currencies, NFTs distinguish themselves because of their unique structure. Whereas virtual or fiat currencies are fungible — that is, one U.S. twenty-dollar note is the same as any other U.S. twenty-dollar note — an NFT is separately unique.

While fungibility carries significant implications regarding the flow of commerce, non-fungibility features enormous relevancies where distinct or unique certifications are required. For instance, NFTs may undergird the authentication process of sports memorabilia or security protocols deployed at federal checkpoints.

Returning to Ultimax, the company carries three business units per its IPO prospectus.

  • Ultimax Game Studio: Focused on game acquisition and re-development, Ultimax Game Studio seeks to acquire “fully developed or nearly completed, high-quality video games from distressed development studios.”
  • Ultimax NFT Marketplace: Likely the main driver of investor sentiment, the Ultimax NFT Marketplace will “allow Ultimax and third party content owners to create NFT-based trading cards for characters in their video games, and in the case of artists and comic book publishers, NFTs based upon their art and characters.”
  • Ultimax NFT Toolkit and Plug-in: Representing an embeddable programming interface, the Ultimax NFT Toolkit and Plug-in business seeks to reduce pain points for NFT developers and facilitate easier programming and publication.

Notably, investors should recognize that while Ultimax carries grand ambitions, it’s a small enterprise. Per its IPO prospectus, as of May 31, 2022, the company “did not have any full-time employees and retained approximately seven consultants, software developers and engineers.”

When is the Ultimax Digital IPO Date?

Although one of the more anticipated public market debuts within the ardent blockchain advocacy community, Ultimax presently does not have a date set regarding its debut on the IPO calendar. Regarding the timeline, investors only know that Ultimax filed its Form S-1 on Sept. 23, 2022.

Still, the company provided significant details that allow interested participants to carefully plan their exposure. The New York-based entity plans to raise $11 million through the distribution of 2.5 million shares. Further, the estimated pricing spectrum ranges from $4 to $5. At the midpoint of this range, Ultimax would command a market capitalization of $83 million.

Management plans to list Ultimax shares on the Nasdaq exchange under the ticker symbol NFTX. WestPark Capital represents the sole bookrunner for the IPO.

Once a debut date materializes, the real work begins. Generally speaking, the equities sector imposes a risk-off environment. With the Federal Reserve committed to a hawkish policy to unwind prior excesses in the monetary system, the subsequent rise in the benchmark interest rate also lifts borrowing costs. This dynamic sharply reduces incentivization for lending-driven commercial expansion, thus sparking selloffs for growth-centered stocks.

Without an established profitability track record, NFTX stock will likely encounter severe headwinds. Beyond that point, the IPO market itself suffers from a dearth of participation. According to FactSet, “1073 companies IPO’d in 2021, raising $317 billion; in the first half of 2022, the total was just 92 companies, raising just under $9 billion.”

If that wasn’t enough of a concern, blockchain-related enterprises plunged into the abyss as the wider cryptocurrency sector cratered. Even now, the digital asset market remains deeply troubled, posing viability concerns for NFTX stock.

What Analysts are Saying About Ultimax Digital IPO

As a relatively diminutive IPO, very few analysts chimed in on the prospects for NFTX stock. Nevertheless, the pros and cons of the underlying business center on the precarious balance between the NFT market’s upside potential and its downside risks.

On the positive front, the broader crypto market effectively crossed the Rubicon in 2021. True, virtual currencies suffered staggering losses on a year-to-date basis, with several benchmark assets suffering losses of 60% or more. Nevertheless, the entire planet suddenly became familiar with these decentralized digital assets and more importantly, their potential to generate wild upside. Therefore, even if many investors moved on to other alternative assets, the memory of crypto’s heyday likely lingers.

Therefore, by taking a small, measured risk with NFTX stock, investors may be able to see substantial gains should the crypto market encounter a revival. Additionally, as a public stock, NFTX carries administrative benefits such as recourse if one’s account is hacked.

On the other hand, very few if any blockchain-related enterprises succeeded in generating positive market momentum amid the crypto rout. For instance, even blue-chip enterprises like IBM (NYSE: IBM) — which features a blockchain business unit — still incurred losses on a YTD basis. Therefore, NFTX stock may encounter wild volatility upon its debut.

Ultimax Digital Financial History

While the prospects of the NFT marketplace may excite prospective IPO participants, Ultimax issued a stark statement on its Form S-1 that should raise alarm: “The company had no revenue in 2020 and in 2021. As a result, management and our auditors have concluded that our historical recurring losses from operations and unstable cash flows from operations raise substantial doubt about our ability to continue as a going concern.”

In the year ended Dec. 31, 2020, the company posted a net loss of nearly $230,000. One year later, this loss expanded to $942,764. Thus, investors will be absorbing significant risks if they acquire NFTX stock.

Ultimax Digital Potential

To be fair, the broader blockchain marketplace commands significant upside potential because of its popularity and underlying innovations. At the same time, prospective participants of NFTX stock must be realistic regarding their expectations.

Time and again, crypto-related enterprises stumbled badly this year. The ones that can survive the onslaught will likely carry a robust balance sheet and strong cash position. However, Ultimax’s balance sheet as of the end of 2021 is in deficit to the tune of $862,465. It also only carries cash on hand of $66,195. It’s questionable if that’s enough to sustain multiple down years.

Where to Buy Ultimax Digital IPO Stock

If you want to participate in Ultimax Digital’s IPO, you’ll need to know how to buy stocks. But before you take that step, you must sign up for a brokerage account. Below is a list of the best brokers to consider.

NFTX Restrictions for Retail Investors

Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.

NFTX Pre-IPO

At the time of writing, no pre-IPO opportunity has been announced for NFTX stock. However, those interested in early bird prospects should consider opening an account with ClickIPO.com.

About Joshua Enomoto

His distinct writing style of distilling convoluted data into relatable and compelling narratives has earned him recognition among several investment-related publications.